Practical IT Research that Drives Measurable Results Maximize Vendor Performance

Maximizing Vendor Performance Organizations are increasingly dependent on external vendors and suppliers to enable the effective delivery of IT services. However, most companies don’t manage vendor performance, resulting in service degradation over time. The relationship between your organization and its IT vendors plays a key role in ensuring overall enterprise success. Increasing the level of performance from your suppliers through effective vendor management extends your capabilities and has a positive impact on your organization’s bottom line. This solution set provides practical guidance to mid and large-sized organizations for managing the portfolio of vendors to achieve maximum performance from suppliers of products, projects, services, and support. IT leaders and managers in small organizations who are responsible for dealing directly with vendors will learn the nuances of managing vendor relationships and how to motivate vendors to higher levels of performance. The advice in this solution set will enable you to manage your vendor portfolio and maximize vendor performance through: Establishing Performance Metrics Managing the Relationship Motivating for Better Performance You will take away: Recommended metrics for measuring vendor performance. Lessons learned from actual case studies supplied by your peers (names withheld to protect relationships). Tactics for cultivating the vendor relationship and motivating the vendor to provide exceptional service. Practical survey and dashboard tools for assessing the level of delivered services and targeting problem areas. Advice and job descriptions for staffing a Vendor Management Office.

Executive Summary Vendor Management Principles Performance Metrics Managing Relationships Performance Motivators 5 Vendor Portfolio Management 6 Summary Recommendations 1 Organizations today rely heavily on IT services delivered by external suppliers. Without effective performance measurement, relationship management, and motivation, vendor performance will degrade, resulting in a negative impact on you and your customers. Active management increases vendor level of performance, lowers costs, improves service, and delivers higher customer satisfaction. Vendor performance metrics provide a common understanding between you and the vendor delivering the products/services. Measuring progress against metrics allows you to set targets for higher performance or address a vendor’s substandard performance before it becomes a larger problem. Your organization’s size relative to your vendor’s and the role of your assigned client-facing representative dictate how you manage the relationship. Cultivate vendor management relationships to leverage negotiations and nurture the client-facing worker who will go above and beyond for you. Without sufficient motivation, vendors will generally only meet the agreed upon expectations. Leverage the drivers of vendor profitability, reputation, and partnership to motivate a vendor to higher performance. The time, effort, and money spent on managing the vendor relationships as a portfolio will result in a consolidated view of performance highlights and issues, higher customer satisfaction, lower costs, higher quality, and superior vendor service. Establish metrics to measure vendor performance. Cultivate vendor relationships. Leverage motivators to incite the vendor to exceptional service. Use survey and dashboard tools to assess vendor performance and fix problem areas. Manage vendors as a portfolio to achieve benefits from economies of scale, consolidation, and focus.

Managing vendors to motivate higher performance is crucial for companies that rely on delivered IT services. Cost savings come from consolidating experience from multiple vendors. Successful vendor management rests on three principles: 1.Metrics to set performance expectations. 2.Strong relationships to leverage vendor goodwill. 3.Motivators to incite the vendor to higher performance. Managing vendors to motivate higher performance is crucial for companies that rely on delivered IT services. Cost savings come from consolidating experience from multiple vendors. Successful vendor management rests on three principles: 1.Metrics to set performance expectations. 2.Strong relationships to leverage vendor goodwill. 3.Motivators to incite the vendor to higher performance. Next Section in Brief Vendor Management Principles Performance Metrics Managing Relationships Performance Motivators Vendor Portfolio Management Summary Recommendations 1

Two things you need to know about maximizing vendor performance Vendor performance management is the process of measuring, communicating, and improving the services your vendors provide. - Work with the vendor to set performance targets. - Measure performance, provide feedback, and escalate issues. - Cultivate personal relationships with vendor management (your escalation points). - Make frontline workers feel like part of your organization (they will reward you with exceptional service). - Meet regularly with vendors and find out what motivates them; use those motivators strategically to improve performance. - Read on…… Vendor performance management is the process of measuring, communicating, and improving the services your vendors provide. - Work with the vendor to set performance targets. - Measure performance, provide feedback, and escalate issues. - Cultivate personal relationships with vendor management (your escalation points). - Make frontline workers feel like part of your organization (they will reward you with exceptional service). - Meet regularly with vendors and find out what motivates them; use those motivators strategically to improve performance. - Read on…… How do I do it? Unless actively managed, many vendors allow performance levels to drop, hoping that reduced service levels won’t be noticed. Poor service to your organization means poor service to your customers and impacts the bottom line through downtime, excessive project costs, high defect rates, and late deliveries. Other vendors, while maintaining service levels, will go above and beyond if given the right motivation. Better service to your organization means better service to your customers through quick problem resolution, higher quality, value add features, and faster delivery. Unless actively managed, many vendors allow performance levels to drop, hoping that reduced service levels won’t be noticed. Poor service to your organization means poor service to your customers and impacts the bottom line through downtime, excessive project costs, high defect rates, and late deliveries. Other vendors, while maintaining service levels, will go above and beyond if given the right motivation. Better service to your organization means better service to your customers through quick problem resolution, higher quality, value add features, and faster delivery. Why do I need to worry about it?

Make improving vendor performance a strategic goal if you rely on vendors to provide key IT services Adopt vendor performance management processes and tools to understand and improve the performance of the vendor extended enterprise Maximize the quality of vendor services through measurement, relationships, and motivators to improve performance and competitiveness IT’s growing reliance on suppliers to provide critical services drives the need for better vendor management Without active management, vendor service levels will fall and your customers will suffer. Info-Tech’s tools and advice will help you get better service and higher performance from your vendors. Set performance targets, provide feedback on performance, and act on what motivates vendors.

Not all improvements are measurable in dollars; offset vendor performance management costs through qualitative benefits

The key to effective vendor performance management is a process that leverages metrics, relationships & motivators Vendor Performance Management Select the vendor best suited to deliver the desired services Work with the vendor to set performance metrics Share performance data with the vendor to address issues Determine motivators that drive the vendor to better performance Act to leverage motivators for better performance Renew/ renegotiate/ terminate the relationship Measure

Overcome the challenges of vendor performance management through active dialogue, expectation setting, and use of tools > Cultivating vendor relationships and identifying motivators to maintain or improve vendor performance levels. > Managing multiple vendor contracts and communications channels. > Reconciling disparate internal and vendor stakeholders and objectives to achieve maximum value. > Consolidating and analyzing sometimes conflicting data between internal and vendor reported performance metrics. > Managing the vendor’s expertise and retaining control of the project or strategic capability. > Conduct regular open discussions with vendors to discuss what’s working and what isn’t. Conduct satisfaction surveys with them to identify motivators for better performance. > Manage small vendor portfolios with spreadsheets. For larger portfolios, purchase commercial vendor management software. > Ensure requirements of all stakeholders are considered and the right vendor is engaged by centralizing vendor management to one person or team. > Determine the metrics that matter to your organization and ensure the vendor is accurately reporting the same metrics. > Take ownership of the contract; ensure that the vendor is respecting the contract terms, deadlines, and commitments. CHALLENGES TACTICS

Performance Metrics To manage performance, define your expectations and how you will measure vendor performance precisely. Use objective, numerical indicators to form the basis of your performance measurement and communicate these to the vendor. Add in qualitative metrics when you cannot quantify. Measure performance across four categories: Cost, Time, Quality, and Opinion. Relationship Management Your relationship with the vendor governs your ability to use metrics and financial motivators. Incorporate the human factor into your vendor strategy by understanding the nature of your vendor relationship. The nature of the relationship will depend on the relative sizes of the vendor and customer organizations. Avoid creating resentment by following the norms that govern your particular situation. Performance Motivators Drive vendor behavior using an array of incentives and penalties: - Offers of more business - Threats to discontinue business - Offer of a positive referral or public recognition Ultimately, all incentives advance the vendor’s desire for more business and greater profit, in different ways. Measure successful vendor performance based on three pillars: Metrics, Relationships & Motivators

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